Question

TechPro offers instructional courses in e-commerce website design. The company holds classes in a building that it owns. Classify each of TechPro’s costs below as (a) variable (V) or fixed (F), and (b) direct (D) or indirect (I). Assume the cost object is an individual class.

a.	b.		a.	b.
		1. Depreciation of the classroom building			4. Travel expenses for salesperson
		2. Monthly Internet connection cost			5. Depreciation on computers used for classes
		3. Instructional manuals for students			6. Instructor wage (per class)

Short answer

a.	b.		a.	b.
F	I	1. Depreciation of the classroom building	F	I	4. Travel expenses for salesperson
V	D	2. Monthly Internet connection cost	F	I	5. Depreciation on computers used for classes
V	D	3. Instructional manuals for students	V	D	6. Instructor wage (per class)

Step-by-step solution

Definition of Cost Objects

The item the business entity separately calculates cost is known as the cost object. The cost incurred by the business entity is managed using the cost object only.

Classification of cost

1. Depreciation of classroom building is classified as a fixed indirect cost because this cost is incurred even when the business entity does not produce any good. Also, it is not directly incurred for the production of the goods.

2.The monthly internet connection cost is incurred according to internet usage. Therefore, it is considered a variable cost. Also, this is a direct cost because observation can quickly identify it.

3. The cost incurred for instructional manuals will be variable because it depends upon the number of students registering for the course. It is a direct cost because it is directly associated with the product.

4. Travel expenses for the salesperson will be fixed because this cost does not depend upon the number of students who register for the program. Also, it is not directly attached to the business entity’s product.

5. Depreciation of computers is classified as a fixed indirect cost because this cost is incurred even when the business entity does not produce any good. Also, it is not directly incurred for the production of the goods.

6. Wages paid to instructors are a variable cost because it depends upon the number of classes the instructor takes. Also, it is a direct cost because it can be identified with the product offered by the business entity.